Learn How to Define Your Market

How you define your market can ultimately define your startup...

Learn How to Define Your Market
Photo by Kasia Derenda on Unsplash

The last few weeks I’ve shared examples of how six startups defined their markets.

Three used a well-defined wedge strategy.  And you can easily see their resulting market traction.

Three didn’t. And they never saw significant market traction.

To be clear, I’m not judging those companies.

Defining a market and creating a wedge strategy is difficult. It’s such a fuzzy concept. And there is never one clear, right answer.

Other startup elements are more binary.

Customer Insights is much less gray.  A clearly defined problem space is obvious.

Same with Team composition. You have the 7 Necessary Skills to Succeed, or you don’t.

But defining a Market is complex.  Where do you start? And how do you grow? There could be dozens of viable answers.

Choosing which is right for your startup and executing well…that’s the heart of it.

Getting to the heart of it...

It’s not easy.

So, I shared a simple framework to help:

  1. How to know if your defined market is focused: 
    1. Does your solution solve a specific problem for a specific user group?
    2. Is your solution easy to adopt?
  2. How to know if your defined market is small and can scale:
    1. Do you have the right level of resources to deliver value quickly? (i.e., is it feasible for you to deliver?)
    2. Does your initial market generalize to a bigger market or is there an adjacent market? 

Answering these questions can help a nebulous, elusive process be more tangible.

Seeing concrete examples—both good and bad—help as well.

This is why I’ve shared the results of six startups for this topic. But I promised you nine…

So, I owe you three more.

How 3 Darling Startups Used a Wedge Strategy

A few years back Lenny Rachitsky wrote a post about picking a wedge.  He shares many examples of how well-known startups have used this strategy.

You should check it out. Because, as mentioned, seeing concrete examples helps.

At one point in his post, Lenny shares examples of 6 companies he believes succeeded without a wedge strategy (Zoom, Slack, Workday, Notion, Datadog, Spotify, and Peloton).

However, I disagree with this assessment.

So, our last three examples will come from this list. Specifically, we’ll look at Datadog, Slack, and Notion.

Remember, there are three general approaches to forming a wedge strategy:

  • Product focus
  • Geography focus
  • Audience focus

What approach did Datadog, Slack, and Notion use? Let’s explore...

How Datadog Found Their Focus

Datadog was founded in 2010 “to bring…two cultures together to create a more nimble and collaborative software and operations culture.”

From the start, Datadog was focused on the DevOps audience.

The DevOps concept is widely recognized as starting in 2009 by Patrick Debois.  So, Datadog’s market timing was impeccable.

One reason for this timing is the founders worked together at a previous startup. One was head of product. The other was head of operations. And their teams didn’t really work together very well.

But they liked each other. And they built a patchwork process to make sure the teams worked better together.

Turns out this was being done by many other companies at the time. And the DevOps concept was fueling this trend.

However, a major problem was there were no tools to help standardize how the teams worked together. Plus, there was a shift happening with infrastructure: from on-premise to the cloud. This complicated matters.

Datadog’s approach solved both of these issues.

Although Datadog’s solution eventually became a suite of monitoring tools. It didn’t start that way.

For the longest time, Datadog focused on the single product of infrastructure cloud monitoring. It was described as “simple but not simplistic”.

This combined audience and product focus worked wonderfully for Datadog.

One of their cofounders told TechCrunch, “We had exactly the right product at the right time.  And a lot of it was luck.”

Maybe it was luck. Or maybe it was focusing a product experience for a specific audience.

Another thing that might have been lucky for the founders was their inability to secure VC funding.  It was a long slog for them.

As a cofounder said, this “forced us to spend all of our time with customers and people who were related to the problem. It grounded us in the customer problem.” 

So, it forced them to solve a specific problem for a specific user group. Lucky indeed!

This focus also led to a geography focus for Datadog. Initially, they stayed near New York, focused on companies in the Northeast.

Then for the first two years after they launched, they were focused on US-based companies.

It wasn’t until after 2015 they started selling internationally.

This means Datadog blended an audience, product, and geography focus to gain market traction.

A trifecta!

Trifecta!

Before moving on, it’s important to highlight one distinction between Datadog and Calixa.

It worked for Datadog to target the DevOps audience because there was already a groundswell of the Developer and Operations audiences working together.

Calixa attempted to target GTM teams (Sales, Marketing, and CS). However, there wasn’t a recognizable trend of these teams already trying to work together.  And Calixa wasn’t well positioned to generate this type of momentum.

It’s important to leverage what is rather than hope for what could be…

How Slack Found Their Focus

Slack’s story has been widely shared.

You are likely already familiar with how they started with a focus on video games. After a few pivots, they stumbled on the idea we all now know as Slack.

The part of Slack’ story I want to highlight is their intense focus on customer feedback.

They used this feedback to prioritize features. And then let go of the rest…

This product focus became well known.  Slack eventually developed a reputation for having minimal features.

So, the short story is Slack developed a product focus, making sure they were solving a specific problem for a specific user group.

How Notion Found Their Focus

Like Slack, Notion had a few hurdles in the early years.

Notion was founded in July 2013. They had one Seed Round in 2015.  And another in 2016.

But after their 2015 Seed funding, the cofounders fired their four engineers, moved to Kyoto, and refocused.  As this blog post from Figma put it, they pulled themselves back “from the brink of failure”.

Eventually, they launched Notion 1.0 in March 2018. This is the beginning of the Notion that everyone eventually fell in love with.

The core of their idea remained the same between their pre-2015 effort and 2018. But the implementation was notably different.

For starters, Notion’s audience focus in pre-2105 was the nebulous and broad group of “creators”.  By 2018, they were focused on white collar desk workers.

Then there was Notion’s product focus.

Pre-2015, Notion was delivering “Documents reimagined”.

This sounds focused enough. However, this included document creation, videos, real-time collaboration, and more.

Specifically, here is a list of features originally being built:

  • Video: Embed from Youtube or Vimeo
  • Files: Upload from your computer, Dropbox, or Google Drive
  • Dropdowns: Provide a list of options (to assign to team members)
  • Code: A full code editor with formatting and highlighting
  • Comment: Annotate in the content and notify your collaborators
  • Camera: Video chat with collaborators without leaving your document
  • Design your own: Notion is built on Web Components

This is a lot for a v1 to deliver. And it makes the value prop incredibly murky. Who would benefit from all this? And why would those people replace other tools they were already using?

But the Notion cofounders fixed this lack of product focus.

By the time Notion 1.0 came around in 2018, they were focused on a “minimal & unified workspace for teams”. Specifically, this included Docs, Wiki, and Tasks.

So, Notion’s increased product and audience focus paid off. It helped them create significant market traction.

And these changes are notable because they previously struggled to gain any traction.

There Is Not Just One Way

I hope all these examples highlight that there isn’t just one way to define your market.

The goal is to:

  1. Remain focused.
  2. Start small and then scale.

But how you do that is entirely up to you and your target customers.

Some might look at the last example of Notion and believe they didn’t focus enough.  And perhaps for you and your team it wouldn’t have been enough. But Notion made it work.

What does matter is to make an effort here. Don’t just shrug your shoulders and believe you’ll work it out over time.

If you start with no focus, you’ll very unlikely to suddenly stumble upon it.

One piece of advice I’ve shared with cofounders is “if you don’t feel at least a little bit uncomfortable with your market definition, then you probably aren’t focused enough.”

And remember, the point to all of this is to stay in balance.

You always have limited resources.  Make market decisions that are aligned to the amount of resources you have.

So, while there isn’t one way to do this. There are some guardrails.

Focus. Balance. Grow!

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